Member States shall prohibit traders from charging consumers, in respect of the use of a given means of payment, fees that exceed the cost borne by the trader for the use of such means.
9.1. Introduction
Article 19 applies to the use of 'means of payment'. Since these terms are not defined in any way, Article 19 should apply to any means of payment, including cash.
As regards payments using payment (bank) cards, Article 19 is currently not relevant for 13 Member States that have used the option offered by Article 52(3) of the Payment Services Directive (PSD)26 to ban surcharging.
Furthermore, on 24 July 2013 the Commission proposed measures27 to ban payment card surcharges for most card transactions. Specifically, the proposal to revise the Payment Services Directive bans payment surcharges for so-called MIF-regulated28 cards, which represent more than 95% of the consumer card market.
9.2. Definition of 'fees'
Article 19 should apply to all kind of fees which are directly linked to a means of payment, regardless of how they are presented to consumers.
For example, fees referred to as administration, booking or handling fees, which are commonly used in the online ticketing sector, especially by airlines and ferry companies, and also in online sales of tickets for events should be covered by Article 19 if they can be avoided by using a specific means of payment.
Discounts granted to consumers for the use of a certain means of payment, most typically direct debit, should not automatically be considered fees for all other available means of payment within the meaning of Article 19. This is because the 'discount' may be based on the trader's legitimate interest in encouraging the use of certain means of payment that are more efficient in relation to his business structure, rather than on covering the costs of using some of the others29.
However, it cannot be excluded that surcharging, within the meaning of this Article, might be achieved by giving identical or different discounts to various means of payment and leaving,
26 Directive 2007/64/EC of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC. Article 52(3) reads as follows: '3. The payment service provider shall not prevent the payee from requesting from the payer a charge or from offering him a reduction for the use of a given payment instrument.
However, Member States may forbid or limit the right to request charges taking into account the need to encourage competition and promote the use of efficient payment instruments.'
27 Proposal for a Directive on payment services in the internal market and amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC (COM/2013/0547 final); Proposal for a Regulation of the European Parliament and the Council on interchange fees for card-based payment transactions (COM/2013/0550 final)
28 Multilateral Interchange Fees (MIFs) are multilaterally agreed fees payable between the Payment Service Providers (PSPs) of the payer/consumer and of the payee/merchant. Article 55(4) of the proposed Directive provides for banning payment surcharges for the most popular debit and credit card payment schemes used by consumers (such as Visa and MasterCard), for which the proposed Regulation introduces caps on interchange fees. The ban on surcharging will not apply to non-capped cards, which in particular include commercial cards (like company cards) and cards issued by so-called three party schemes where the cards are not issued by banks but by the scheme itself (e.g. American Express and Diners). For those payment transactions, Article 11(3) of the proposed Regulation confirms that Article 19 of the CRD would remain applicable to prevent a trader from charging in excess of the cost borne for accepting that means of payment.
29 In particular, direct debit allows the trader to predict the cash flow. The discount for using direct debit may therefore be granted not so much for using a specific means of payment but rather to encourage the consumer to pay regularly at a specified date.
for instance, only 1 or 2 payment methods outside the discount scheme. Each discount scheme would have to be assessed for compatibility with Article 19 on a case-by-case basis.
Article 19 should not prevent traders from charging different prices for the same good or service when sold through different sales channels:
For example, a higher price might be charged for a concert ticket issued directly at the theatre and a lower price charged at other sales premises.
9.3. Definition of the 'cost' borne by the trader
9.3.1. The Merchant Service Charge and other direct costs for processing card payments The Directive neither defines nor gives details of the notion of 'cost borne by the trader' referred to in Article 19.
For most traders, the merchant service charge ('MSC') is the largest single component of the cost of accepting card payments. The MSC generally includes:
1) the interchange fee paid by the trader's bank (the acquirer bank) to the card issuer;
2) the fees paid by the trader's bank to the scheme (e.g. Visa or MasterCard); and 3) the margin retained by the trader's bank to cover costs and profit.
For credit card transactions, the MSC is typically fixed at a percentage of the transaction value, while for debit card transactions it is more commonly, though not universally, a flat rate. The MSC varies considerably depending on turnover, the business sector and other characteristics of the trader.
In addition, there may be transaction or overhead fees paid by the trader to the acquirer bank or to a payment service intermediary.
Payment service intermediaries help some retailers accept secure payments and may charge for providing payment functionalities, fraud detection and management services and/or services usually provided by acquirer banks30.
30 Payment service intermediaries help some retailers accept secure payments online or in other 'cardholder not present' situations such as through call centres or mail order. Intermediaries may charge for: (i) providing equipment and services needed to accept online and other distance payments, such as payment functionality for retailers' websites; and /or (ii) providing fraud detection and management services (in which some intermediaries specialise); and /or providing some or all of the merchant services usually provided by acquirer banks, up to full transaction processing. In these cases, the intermediary typically deals with the acquirer bank and acts as a point of contact for retailers, charging a mark-up on the acquirer's relevant fees.
9.3.2. General costs of running a business that are indirectly linked to processing payments Traders usually bear other business costs, which can be indirectly linked to accepting or processing payments based on the means used. These are mainly administrative costs, equipment installation and set-up fees, and costs deriving from fraud and risk management.
9.3.3. Eligible costs justifying a fee for the use of means of payment
Only fees which are directly charged to the trader for the use of a means of payment should be considered as the 'cost' of that means of payment within the meaning of Article 19.
The costs to the trader that can legitimately be taken into account to justify fees to consumers are the MSC and the transaction or overhead fees paid to intermediaries for some or all of the merchant services usually provided by acquirer banks. In these cases the intermediary typically deals with the acquirer bank and acts as a point of contact for retailers, charging a mark-up on the acquirer bank's fees for the relevant services.
It is for the trader to decide whether to outsource, for instance, the provision of the following items/services:
– acquiring and maintaining point-of-sale equipment like chip-and-pin devices;
– fraud monitoring and maintaining compliance with Payment Card Industry Data Security Standards (PCI DSS) to help prevent fraud, as required by all the major card networks;
– developing and running infrastructure to handle card payments, such as payment functionality for websites or call centres; and
– staff training.
The costs of payment equipment, fraud detection and management (or similar) services should remain excluded from the notion of 'cost' under Article 19; they should be regarded instead as general costs of running a business, and this regardless of whether they are provided by the trader directly or outsourced. If outsourced, they are generally charged for separately from the main 'overhead fees' or MSC.
The processing of payments and handling cash involves staff costs that are difficult to quantify as they are often included in overall administrative costs. The costs deriving from fraud and risk management vary significantly between sectors and traders but are generally considered to be falling thanks to the introduction of new electronic payment technologies.
These costs should also remain excluded from the notion of 'cost' under Article 19 and should be regarded instead as part of the general cost of running a business.
This argument is particularly valid for businesses that sell goods or provide services online only and that only accept electronic means of payment. For such businesses, the staff costs incurred in processing an electronic payment and costs deriving from fraud or risk management are fundamental elements of their very business model.
Furthermore, from a more practical viewpoint, including in the notion of 'cost' all possible elements that may be associated even indirectly with a means of payment, would make Article 19 difficult to enforce and would prevent it from having any practical effect ('effet utile'). This is true given that, for instance, very little information is publicly available about administrative costs and that the exact cost of equipment and/or installation can only be calculated by spreading the amount over an unknown number of transactions.
As only the trader is in a position to supply the relevant details about the cost of a means of payment, the need to verify, case by case, what the 'indirect costs' of a given means of payment are would require disproportionate enforcement efforts and would lead to a very uncertain and inconsistent outcome across the EU.
9.4. Payments in foreign cash
Cash payment in foreign currency is also a 'means of payment' within the meaning of Article 19. Therefore, a trader should not use currency conversion as a method of actually imposing payment surcharges on the consumer that are not justified by the actual costs incurred in offering the option of paying in foreign cash (in particular, the costs borne by the trader to convert the cash received).
For example, where a trader in a remote area accepts, as an exception, a cash payment by a tourist in a foreign currency, the eligible costs would include the cost of the trader's trip to the nearest bank to exchange the currency and any fees applied by the bank;
By contrast, where accepting foreign cash as means of payment is a standard commercial practice for the trader, only the applicable currency exchange fees are likely to be eligible costs.